From Bernie Madoff and Allen Stanford to Trevor Cook and Arthur Nadel, it seems every con artist out there is a “Ponzi schemer.” But, what does that mean?
A “Ponzi scheme” is a type of investment fraud scheme that involves the payment of false “returns,” “interest,” or “dividends” to some investors from funds contributed by other or newer investors. The scheme takes its name from Charles Ponzi, a man who defrauded thousands of investors and many banks back in 1919.
Unfortunately, no one Ponzi scheme is exactly like another, which makes detecting them somewhat difficult. However, there are ways to protect yourself and understand who are common targets for Ponzi scams.
Many investors may believe they’re making money off these so-called “investments” although there typically is little to no legitimate investment activity actually taking place. Instead, more and more investors are brought in to keep funding the scheme. When the promoter is unable to bring enough new funds into the scheme to keep up appearances, the entire thing falls apart.
The best way to safeguard your savings from a Ponzi scheme is to avoid becoming a victim in the first place. However, if you believe you may be a victim of a Ponzi scheme, you may be able to recover some of your investment losses. To learn how, click here.